House approves change to state estate tax

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OLYMPIA — The Washington state House on Thursday narrowly approved a measure making changes to the state’s estate tax for married couples in an effort to avoid refunding millions of dollars to estates following a state Supreme Court ruling.

The measure passed on a 51-40 vote and now heads to the Senate for consideration. The bill is a legislative workaround to last year’s ruling by the high court, which found that the estate tax did not apply to married couples who had used a certain estate planning tool prior to 2005. Officials say that if a fix isn’t made to the law, it could cost the state $160 million over the next two years.

The Department of Revenue says it has already received 70 refund requests totaling between $40 million and $50 million from estates that had paid the taxes prior to the court ruling. Others have gone to court to seek refunds. The state agency plans to start processing refund requests next week, and expects to pay all refunds by the end of June unless the Legislature takes action, according to spokesman Mike Gowrylow.

Even if the Legislature approves the measure, which is retroactive, Gowrylow said that the department would not be able to recover any refunds that were already made before the law was signed. But the measure would affect all future refund attempts.

He said that the impact of the court ruling is expected to be $160 million for the next two years, and about $40 million a year after that.

In the joint case that sparked the measure, the Estate of Bracken and Estate of Nelson, the state has already paid a refund of $3.2 million to the Bracken estate, and canceled a $2 million assessment on the Nelson estate, Gowrylow said.

Republicans raised concerns about inequity for estates that would not receive refunds because of the timing of the legislation, as well as constitutional concerns about the retroactivity of the measure that could lead to the state being sued.

The state Supreme Court overturned the state’s estate tax in 2005, leading the Legislature that year to pass a law restoring a narrower version of the tax, having it apply to estates of $2 million or more. Last year’s ruling addressed the application of estate tax to a particular estate planning vehicle used before 2005, but Gowrylow said the state had interpreted the high court ruling to apply to estates that used the tool after 2005 as well. The planning tool in question allows a spouse to transfer assets to a surviving spouse without paying taxes if they’re using a certain type of trust.